Industry and globalisation

The Construction of a New International Economic Order

Video Message by Angel Gurría, OECD Secretary-General, delivered at the International Conference on Global Value Chains and Structural Adjustments

Event: 26 June 2013 (As prepared for delivery)

Distinguished Guests, Ladies and Gentlemen:

It is a pleasure to participate, albeit remotely and from Paris, in the International Conference on Global Value Chains and Structural Adjustments. This conference follows up on the meeting held last September 19th and 20th, in which I had the opportunity to participate and discuss with you for the first time the importance of .

Our work on TiVA – as we call it – not only allows us to better understand global value chains, but also to analyze their implications for policy-making in areas like SME integration, global supply chains, and trade and job creation. As you conclude the intensive discussions held over the past 2 days, I would like to share with you the OECD’s contributions to a better approach and understanding of the new international economic architecture.

The emergence of (GVCs) creates an enormous opportunity for growth and progress for both developed and developing countries. GVCs maximise competitive advantages and optimise resources. They also allow firms and economies to use intermediate goods and services to focus and be competitive in one “link” of the value chain without having to develop a whole industry.

Moreover, GVCs affect countries’ competitiveness and patterns of trade and investment. Participation in these value chains helps countries move far along in their development process. As China, our host country today has shown, playing a significant role in GVCs will enable considerable steps towards economic development.

To better integrate their economies into GVCs, governments need a fine-tuned understanding of their dynamics and policies, and we have made considerable progress on this front. We recently launched our joint OECD-WTO database on TiVA, which accounts for trade in intermediates and calculates the contribution of each economy to the global value chain. We are currently refining and enhancing this important database.

This is helping us to measure real trade more accurately, to better understand its dynamics and make the best out of existing opportunities. We also recently produced a more in-depth analysis on the policy implications of GVCs. Let me briefly share with you some of our key findings.

We have learned that success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export: intermediate inputs account for over 2/3 of the goods and 70% of the services we trade. Tariffs on intermediate inputs can thus be cumulative and impose punitive costs on downstream users and final consumers. Put simply, this is bad for growth! This evidence provides additional ammunition to continue supporting open markets for trade and investment.

To compete globally, firms also need to respond quickly to shifts in demand. But their ability to respond is restricted when intermediate inputs suffer unpredictable delays at the border. Trade facilitation measures, including faster and more efficient customs and port procedures, are thus crucial to the smooth operation of supply chains.

We estimate that implementing trade facilitation reforms would reduce total trade costs by 10% in advanced economies, and by about 13% to 16% in developing countries. It would also help boost exports significantly, hence enabling greater participation in GVCs. Reducing global trade costs by 1% would increase worldwide income by more than USD 40 billion, 65% of which would accrue to developing countries.

Our work also emphasises the crucial role of services and efficient network infrastructure. We have found that in China, services reflect at least one-quarter of the value of total exports. Liberalisation of trade in services, including logistics, would thus allow for more efficient and well developed services, enhance the competitiveness of manufacturing firms and facilitate further integration.

Lastly, I’d like to emphasise that both inward and outward investment is a key ingredient to fostering the development of GVCs. Governments should work together to support multilateral trade and investment and ensure countries’ effective participation in global value chains. In this respect, the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US could conceivably become the “gold standard” for deep and comprehensive global trade and investment integration. Negotiations between these two major players arguably have the potential to address a wider range of sensitive issues.

Transparency is a key element in ensuring the TTIP contributes to an effective, rules-based multilateral trading system. Eventually, additional partners could participate in this agreement. Every effort must be made to ensure that bilateral and regional arrangements become “building blocks” to the multilateral trading system.

Ladies and Gentlemen:

The challenge for us, collectively, is to continue to better understand GVCs so that we can best harness their potential for inclusive growth and development. The OECD is committed to this goal. We have made good progress, and with your help, we hope to do even more in order to build better international trade and investment policies for better lives.